UNION BUDGET 2020 - 2021 · the Indian society, polity and economy have shown remarkable resilience in ... Industry, Commerce and Investment Infrastructure New Economy Women & Child,

UNION BUDGET

2020 - 2021

INDEX

Key Highlights - Economy

Key Highlights – Miscellaneous

Tax Proposals

Market Movements: Equity & Debt

Economic Update:

• Budget Summary

• Revenue Snapshot

• Expenditure Snapshot

Sector Updates

Equity Market: Outlook and Strategy

Debt Market: Outlook and Strategy

Though the Union Budget is essentially a Statement of Account of public

finances, it has historically become a significant opportunity to indicate the

direction and the pace of India’s economic policy. The 2020-21 Union Budget

was presented in continuation to strengthen its blueprint laid last year for

creating a $5 trillion economy by 2025. This budget is woven around three

prominent themes dedicated to provide “Ease of Living” to all citizens and to

reinforce the Government’s intention to improve the rural economy by

boosting credit and investment in the agriculture and rural sector. Overall,

the Indian society, polity and economy have shown remarkable resilience in

adjusting with the structural reforms. This year’s budget assumes importance

for the current political regime due to it being the first full year budget of the

government after coming back to power with a thumping majority. With this

background, we present the key highlights of the Union Budget 2020-21.

ECONOMY

• Total expenditure in BE* 2020-21 is slotted to increase by 12.7% over

RE* 2019-20.

• Gross tax revenues are expected to grow by 10.8% in FY21, maintaining

a double digit growth rate for the sixth year in a row.

• Nominal GDP* is estimated to grow at 10% in 2020-21BE. Real GDP

growth is expected to be 6.0% (assuming a 4% target inflation rate as

per BE).

• Direct taxes in 2020-21BE are projected to grow at 12.7% over 2019-20

RE; Indirect taxes budgeted at Rs. 10.99 lakh crore an increase of 11.1%

• Fiscal deficit projections 2020-21BE targeted at 3.5%, 3.3% and 3.1% for

2021-22 and 2022-23 respectively.

• Disinvestment receipts anticipated to be Rs.2,10,000 crore in 2020-

21BE.

• Gross market borrowings are slated at Rs.7.8 lakh crore, while net

market borrowings are slated at 5.36 lakh crore.

BE=Budget Estimates, RE=Revised Estimates; GDP=Gross Domestic Product

KEY HIGHLIGHTS

PROMINENT THEMES OF THE BUDGET

KEY HIGHLIGHTS

Agriculture, Irrigation & Rural

Development

Wellness, Water and Sanitation

Education and Skills

Industry, Commerce and

Investment

Infrastructure

New Economy

Women & Child, Social Welfare

Culture and Tourism

Environment and Climate Change

AGRICULTURE AND RURAL ECONOMY

• Total Allocation towards Agricultural and allied activities, Irrigation &

Rural Development spends is Rs 2.83 lakh crore for FY21BE.

• Government committed towards doubling farmer income by 2022.

• Agriculture credit target for the year 2020-21 set at Rs. 15 lakh crore.

Expansion of NABARD Refinancing Scheme, while MGNREGS to be

used to develop fodder farm.

• Expansion of PM-KUSUM scheme to provide 20 lakh farmers for setting

up stand-alone solar pumps and help another 15 lakh farmers solarize

their grid-connected pump sets.

• Scheme to enable farmers to set up solar power generation capacity on

their fallow/barren lands and to sell it to the grid.

• Indian Railways will set up a “Kisan Rail” in PPP mode to build a

seamless national cold supply chain for perishables.

• Krishi Udan scheme to boost agricultural exports in both international as

well as domestic routes.

• e-NAM to be integrated with financing of negotiable warehousing

receipts.

• Village Storage scheme to provide farmers a good holding capacity and

reduce their logistics cost. More focus on Zero Budget farming.

• One product for one district, so that focus is given at district level for

better marketing and export of horticulture.

• Change in incentive scheme for chemical fertilizers, shall encourage

balanced use of all kinds of fertilizers including the traditional organic

and other innovative fertilizers.

• Doubling of milk processing capacity from 53.5 million MT to 108 million

MT by 2025.

• Raising fish production to 200 lakh tonnes by 2022-23 and fishery

exports to Rs.1 lakh crore by 2024-25.

• Take up comprehensive measures for 100 water-stressed districts

KEY HIGHLIGHTS

INFRASTRUCTURE OUTLAY

• Allocation towards transport infrastructure is Rs. 1.70 lakh crores for

FY21BE; defense outlay is Rs. 4.71 lakh crore for FY21BE.

• National Infrastructure Pipeline of Rs.103 lakh crore launched in Dec

2019 which consists of more than 6500 projects, focused on improving

ease of living for the citizens.

• Development of 2500 Km access control highways, 9000 Km of

economic corridors, 2000 Km of coastal and land port roads and 2000

Km of strategic highways.

• Delhi-Mumbai Expressway and two other packages would be completed

by 2023 . Chennai-Bengaluru Expressway would also be started.

• Monetize at least twelve lots of highway bundles of over 6000 Km before

2024.

• Allocation towards power and renewable energy is Rs. 0.22 lakh crores

for FY21BE. Promote replacement of conventional metering system by

“smart” metering system.

• Expand the national gas grid from the present 16200 km to 27000 km.

• “Arth Ganga”. Plans are afoot to energise economic activity along river

banks. The Jal Vikas Marg on National Waterway-1 will be completed.

Further, the 890 Km Dhubri-Sadiya connectivity will be done by 2022.

• 100 more airports would be developed by 2024 to support Udaan

scheme. Air fleet number shall go up from the present 600 to 1200

during this time.

• Budgeted Railway improvement measures are setting up a large solar

power capacity alongside the rail tracks, 4 station re-development

projects, operation of 150 passenger trains, more Tejas type trains, high

speed train between Mumbai-Ahmedabad and 148 kms long Bengaluru

Suburban transport project at a cost of Rs. 18600 crore.

• Providing digital connectivity to all “public institutions” at Gram

Panchayat level through FTTH connections under Bharatnet programme

in 2020-21. 6000 Crores have been allocated towards Bharatnet.

KEY HIGHLIGHTS

FINANCIAL SECTOR REFORM

• Deposit Insurance Coverage to increase from Rs.1 lakh to Rs.5 Lakh per

depositor.

• Eligibility limit for NBFCs for debt recovery under SARFAESI Act

proposed to be reduced to asset size of Rs.100 crore or loan size of

Rs.50 Lakh.

• Separation of NPS Trust for government employees from PFRDAI.

• Proposed to introduce a scheme to provide subordinate debt by banks

for entrepreneurs of MSMEs that shall be counted as quasi-equity and

would be fully guaranteed through the Credit Guarantee Trust for

Medium and Small Entrepreneurs (CGTMSE).

• Proposal to sell balance holding of government in IDBI Bank.

• FPI Limit for corporate bonds to be increased to 15% from 9% of

outstanding stock.

• New debt ETF proposed mainly for government securities.

• Specified categories of government securities would be opened for non

resident investors

• Proposes to sell a part of its holding in LIC by way of Initial Public Offer.

• Start-ups with turnover up to Rs.100 crore to enjoy 100% deduction for 3

consecutive assessment years out of 7 years.

• Turnover threshold for audit of MSMEs to be increased from Rs.1 crore to

Rs.5 crore, to those businesses which carry out less than 5% of their

business in cash.

• Dividend Distribution Tax shifted to individuals instead of companies

• Propose to extend handholding support in selected sectors such as

pharmaceuticals, auto components and others to successful mid-size

companies to encourage export. A scheme of Rs.1000 crore will be

anchored by EXIM Bank along with SIDBI.

• To launch new direct tax dispute settlement scheme -- Vivaad se

Vishwaas scheme.

KEY HIGHLIGHTS

OTHER INITIATIVES

• To promote Textile Export, National Technical Textiles Mission proposed

with a four-year implementation period from 2020-21 to 2023-24 at an

estimated outlay of Rs. 1480 crore.

• Set up Viability Gap funding window for setting up hospitals in the PPP

mode, giving priority to districts where there are no Ayushman

empanelled hospitals. Allocation towards health sector is at Rs. 69,000

crores

• Commitment to end Tuberculosis by 2025.

• Expand Jan Aushadhi Kendra Scheme to all districts offering 2000

medicines and 300 surgicals by 2024.

• Total allocation for Swachh Bharat Mission is about Rs.12,300 crore in

2020-21.

• Rs.11,500 crore allocated towards Jal Jeevan Mission, which aims to

provide piped water supply to all households.

• About Rs.99,300 crore allocated towards education sector in 2020-21

and about Rs.3,000 crores for skill development.

• About Rs.27,300 crore allocated towards Industry and Commerce.

• Propose to develop five new smart cities in collaboration with States in

PPP mode.

• To achieve higher export credit disbursement, NIRVIK is being launched,

to provide higher insurance coverage, reduction in premium for small

exporters and simplified procedure for claim settlements.

• Digitally refund to exporters, duties and taxes levied at the Central, State

and local levels.

• Proposed outlay of Rs.8000 crore over a period of five years for the

National Mission on Quantum Technologies and Applications.

• An allocation of Rs.3,150 crore towards Ministry of Culture for 2020-21,

to develop 5 archaeological sites as iconic sites, and take up several

museums across the country for renovations.

KEY HIGHLIGHTS

DIRECT TAX

INTRODUCTION OF NEW TAX REGIME:

• A new taxation regime has been introduced. Individuals can choose to

forego deductions and exemptions, and avail lower tax rates upto a limit.

Viability will depend on list of exemptions given up – projected tax

revenue loss of Rs. 40,000 crore in the year.

• Under the new regime, a person earning Rs.15 lakh in a year and not

availing any deductions etc. will pay Rs.1,95,000 as compared to

Rs.2,73,000 in the old regime. Thus, his tax burden shall be reduced by

78,000 in the new regime.

The new Tax Regime is for taxpayers who forego deductions and

exemptions such as:-

• Standard Deduction

• Leave Travel Allowance

• House Rent Allowance

• Interest and principal repayment in respect of self-occupied

property

• PPF, insurance premium, mediclaim premium, NPS contribution

However, opting the new tax regime is optional for tax payers

TAX PROPOSAL

DIRECT TAX

• Introduced TDS on capital gains in mutual fund for resident individuals.

• Contributions exceeding Rs.7,50,000 made by employer to an

employee’s account in a recognized provident fund, notified pension

scheme or approved superannuation fund would be taxable perquisite in

the hands of the employees.

• Securities issued by startups under Employee Stock Benefit Plans by

employers are taxable in the hands of the employees at the time of their

exercise.

• It is proposed to remove the dividend distribution tax payable by

companies and tax the dividend from such companies and mutual funds

in the hands of the recipients at the tax rates applicable to the respective

recipients.

• An additional deduction of Rs.1,50,000 is available in the Finance Act

2019 in relation to interest on loan taken for acquisition of house

property worth less than Rs. 45 Lakhs, taken before 31 March 2021.

• Permanent Account Number (PAN) based on Aadhaar would be

introduced by which PAN would be instantly allotted online.

• Incorporation of a “Taxpayer’s Charter” in the statute with the objective of

ending tax payer harassment.

• Tightening of Residence rules:

• A citizen of India not taxable in any country on account of

residence / domicile etc will be deemed to be a resident of India.

• Residency threshold for NRI/ PIOs inter-alia on an India visit

reduced from 182 days to 120 days.

• Criteria of determining Not Ordinarily Resident in India modified as

under:

• Individual – who is an NR in 7 out of 10 preceding years.

• HUF – Karta has been an NR in 7 out of 10 preceding years.

TAX PROPOSAL

INDIRECT TAX

• Customs duty raised on footwear to 35% from 25% and on furniture

goods to 25% from 20%.

• Excise duty proposed to be raised on Cigarettes and other tobacco

products, no change made in the duty rates of bidis.

• Basic customs duty on imports of news print and light-weight coated

paper reduced from 10% to 5%.

• Customs duty rates revised on electric vehicles and parts of mobiles.

• 5% health cess to be imposed on the imports of medical devices, except

those exempt from BCD.

• Lower customs duty on certain inputs and raw materials like fuse,

chemicals, and plastics

• Higher customs duty on certain goods like auto-parts, chemicals, etc.

which are also being made domestically.

• Tax burden on employees due to tax on ESOPs to be deferred by five

years or till they leave the company or when they sell, whichever is

earliest.

• New Simplified return for GST from April 2020.

• Propose to extend the concessional corporate tax rate of 15% to new

domestic companies engaged in the generation of electricity.

• Anti dumping duty on PTA abolished to benefit the textile sector.

TAX PROPOSAL

EQUITY MARKET

• The Union Budget is dedicated to provide “Ease of Living” to all citizens

and to reinforce Government’s intention to improve the rural economy by

boosting credit and investment in the agriculture and rural sector.

• On the backdrop of weaker economic growth as well as widening fiscal

deficit, the Budget was delivered with major focus towards Agriculture,

Rural Economy, Infrastructure and Healthcare.

• Equity markets ended in deep red on the Budget day. The S&P BSE

Sensex closed at 39,735 levels, a downtick of 2.43% (-988 points).

• Among the S&P BSE sector indices, IT was the only index which gained

by 1.4%. All other indices closed in red led by Realty (-7.8%), Capital

Goods (-4.8%), PSU (-4.0%), Metal (-3.5%), Bankex (-3.2%), Power (-

3.0%), Oil & Gas (-2.6%) and Auto (-2.5%).

• Among Sensex stocks, TCS (+4.1%), Hindustan Unilever (+2.0%) and

Infosys (+0.5%) were the top gainers while Tata Motors DVR (-7.7%) &

Tata Motors (-6.1%), ITC (-7.0%) and Larsen & Tourbo (-6.0%) were

among the major losers.

DEBT MARKET

• The budget has continued to strengthen its blueprint laid last year for

creating a $5 trillion economy by 2025, with a rural focus.

• Bond markets were closed for the day. One needs to watch reaction of

bond market when it opens on Monday. Gross market borrowings was up

to Rs.7.8 lakh crore as expected by market participants. In addition, fiscal

numbers are also in line with the market expectations.

• Furthermore, the FM announced to open up our local bond market to off-

shore investors. Thus, she has hiked participating limit for foreign

portfolio investors (FPIs) in corporate bonds from 9% of outstanding

currently to 15%. Also importantly, certain specified categories of

government securities would be opened fully for non-resident investors,

apart from being available to domestic investors as well.

• The disinvestment target for 2020-21 is Rs.2,10,000 crore as against for

2019-20 is Rs.1,05,000 crore.

MARKET MOVEMENT

ECONOMIC UPDATE

FY21 fiscal deficit targeted at 3.5% of GDP after slippage in FY20

to 3.8% - Both revenue and spending targets padded

• Revenue targets look reasonable at first glance, but likely miss of

FY20RE numbers makes achievement of FY21BE target difficult

• Net tax revenues, which is budgeted to rise 8.7% in FY21, is based on a

more ambitious 12% rise in gross tax collections (ahead of transfer to

states); growth of 14.2% in net taxes to centre in FY20RE seems high.

• Non tax revenue projection of Rs. 3.85 tn in FY21 based on increased

revenues from telecom, which is likely in line with collections of AGR, but

this will offset lower income from dividends as RBI transfers normalise.

• Scope for RBI dividend to come in larger than Rs. 600 bn indicated, but

this depends on extent of provisions in the year.

• Receipts from disinvestments at Rs. 2.25 tn; disinvestments of 2.1 tn

through BPCL, Air India sales and CPSE ETFs are known;

announcement of LIC IPO came as a surprise on the upside.

• Expenditure growth of 12.7% is based on stronger growth of capex at

18.1% so as to improve quality, but actual growth is likely to be higher

given low likelihood that RE levels will be achieved

• Expenditure increases driven by agriculture and allied (28% increase), IT

& telecom (271%), union territories (252% on inclusion of the erstwhile

J&K) and transfer to states for schemes (29%).

• On revenue expenditure side, agriculture and rural sector schemes

predominate growth.

• Food subsidy rising 6% as loans to FCI from NSSF continues to be

envisioned ahead, rather than repayment usually budgeted.

ECONOMIC UPDATE

Duration supply likely to be heavy in FY21, but buyback and cash

buildup targeted can provide a cushion if required

Net market loans at Rs. 5.45 tn in FY21, making up 68% of the total

fiscal deficit

• Reliance on financing through collections of the small savings fund

sharply higher at Rs. 2.4 tn in FY21BE and FY20RE – up from 1.25 tn in

FY20BE and 1.03 tn in FY19.

• Other non-market sources limited; Financing from state PFs at a steady

Rs. 180 bn, external assistance and ‘others’ small.

• Notably, FY21 budgeted to rebuild cash balances by Rs. 530 bn, while

FY20RE numbers have no draw of cash balances (as against 510.5 bn

draw in FY20BE): The RE number provides a buffer for when ambitious

receipts numbers will not materialise, and FY21 buildup can get

minimised since revenues will most likely be deficient.

• Short term borrowings for FY20 and FY21 see an increase in T-bills

outstanding of Rs. 250 bn.

• Above numbers take gross auction supply of G-sec in FY21 to Rs. 7.8 tn

– around market expectations. But budgeted switch of Rs. 2.7 tn

introduces a large amount of duration supply in the year.

• As against this, RBI is expected to continue with twist operations – but

stock on RBI’s balance sheet of FY21 paper is far more limited.

Rs. TnFY19

(A)

FY20

(BE)

FY20

(RE)

FY21

(BE)

FY19

(A)

FY20

(BE)

FY20

(RE)

FY21

(BE)

GDP 189.7 211.0 204.4 224.9 11.0% 11.2% 7.8% 10.0%

Tax Receipts

(Net)13.17 16.50 15.05 16.36 6.0% 25.2% 14.2% 8.7%

Non Tax

Revenue2.36 3.13 3.46 3.85 22.3% 32.9% 46.6% 11.4%

Divestments &

Others1.13 1.20 0.82 2.25 -2.5% 6.3% -27.6%

175.7

%

Total Receipts 16.66 20.83 19.32 22.46 7.4% 25.0% 16.0% 16.3%

Revenue

Expenditure20.07 24.48 23.50 26.30 6.8% 21.9% 17.0% 11.9%

Capital

Expenditure3.08 3.39 3.49 4.12 16.9% 10.0% 13.4% 18.1%

Total

Expenditure23.15 27.86 26.99 30.42 8.1% 20.4% 16.6% 12.7%

Fiscal Deficit 6.49 7.04 7.67 7.96 3.4% 3.3% 3.8% 3.5%

ECONOMIC UPDATE

Higher non-tax revenue and ambitious disinvestment target

expected to offset weaker growth in tax receipts in FY21

Quality of expenditure expected to improve with revenue expenditure growth at 12% for FY21 and capital expenditure growth at 18%

Source: Budget Documents, Axis Bank Economic Research, Axis Bank Investment Research

Nominal GDP growth assumed to be 10% for FY21

ECONOMIC UPDATE

Optimistic assumptions on revenue collections in FY20 will make it difficult to achieve revenue targets in FY21 as well


Rs. TnFY19

(A)

FY20

(BE)

FY20

(RE)

FY21

(BE)

FY19

(A)

FY20

(BE)

FY20

(RE)

FY21

(BE)

Gross Tax

Revenue20.80 24.61 21.63 24.23 8.4% 18.3% 4.0% 12.0%

Income 4.73 5.69 5.60 6.38 9.8% 20.3% 18.3% 14.0%

Corporation 6.64 7.66 6.11 6.81 16.2% 15.4% -8.0% 11.5%

Excise 2.32 3.00 2.48 2.67 -10.6% 29.3% 6.9% 7.7%

Customs 1.18 1.56 1.25 1.38 -8.7% 32.3% 6.1% 10.4%

Service 0.07 0.00 0.01 0.01

Central GST 4.58 5.26 5.14 5.80 15.0% 12.3% 12.8%

UT GST 0.03 0.03 0.07 0.08

Integrated GST0.29 0.28 0.00 0.00 -3.3%

Compensation

Cess0.95 1.09 0.98 1.11 15.0% 3.4% 12.4%

Total GST 5.84 6.66 6.19 6.98 14.0% 6.0% 12.7%

Direct Tax 11.37 13.35 11.70 13.19 13.4% 17.5% 2.9% 12.7%

Indirect Tax 9.41 11.22 9.93 11.04 3.0% 19.2% 5.6% 11.1%

Tax Revenues

(Net to Centre)13.17 16.50 15.05 16.36 6.0% 25.2% 14.2% 8.7%

ECONOMIC UPDATE

Among ambitious tax targets, GST looks the most achievable

Government requires strong improvement in compliance to meet the revenue

targets, given weak economic environment

3.8

%

3.8

%

3.8

%

3.7

%

3.6

%

3.5

%

3.4

%

3.3

%

3.2

%

3.3

%

3.5

%

3.0

%

3.0

%

1.9

%

2.0

%

1.9

%

1.9

%

2.0

%

2.2

%

2.1

%

2.1

%

2.4

%

2.5

%

2.5

%

2.7

%

2.8

%

1.9

%

1.6

%

1.8

%

1.7

%

1.8

%

1.5

%

1.5

%

2.1

% 2.5

%

1.5

%

1.2

%

1.2

%

1.2

%

1.8

%

1.3

%

1.7

%

1.7

%

1.7

%

1.5

%

1.5

% 1.5

% 1.5

%

0.8

%

0.6

%

0.6

%

0.6

%

1.1

%

0.9

% 0.9

%

1.1

%

1.3

%

1.4

%

1.3

% 1.5

% 1.7

%

0.5

%2

.6%

3.1

%

3.0

%

3.1

%

0%

2%

4%

6%

8%

10%

12%

FY09 FY11 FY13 FY15 FY17 FY19 FY21BE

Tax Revenue Break-up (as % of GDP)

Corporation Tax Income Tax Excise Duty Customs Duty

Service Tax GST Others


ECONOMIC UPDATE

Government sets an ambitious target of Rs 2.1 lakh crore disinvestment, including Rs.90K cr. from PSBs and FIs – puts LIC on the block

FY20 disinvestment target reduced to Rs 65,000 cr from Rs 1.05 lakh cr set in

the previous budget – FYTD20 disinvestment proceeds at meagre Rs 18,000 cr

0

500

1,000

1,500

2,000

2,500Rs. bn. Disinvestments


Rs. TnFY19

(A)

FY20

(BE)

FY20

(RE)

FY21

(BE)

FY19

(A)

FY20

(BE)

FY20

(RE)

FY21

(BE)

Expenditure 23.15 27.86 26.99 30.42 8.1% 20.4% 16.6% 12.7%

Subsidies 2.23 3.39 2.64 2.62 -0.7% 52.0% 18.2% -0.5%

o/w Food 1.01 1.84 1.09 1.16 1.0% 81.8% 7.3% 6.3%

Fertilizers 0.71 0.80 0.80 0.71 6.3% 13.3% 13.3% -10.9%

Petroleum 0.25 0.37 0.39 0.41 1.5% 50.9% 55.3% 6.1%

Interest 5.83 6.60 6.25 7.08 10.2% 10.2% 13.4% 7.3%

Revenue

Expenditure20.07 24.48 23.50 26.30 6.8% 21.9% 17.0% 11.9%

Capital

Expenditure3.08 3.39 3.49 4.12 16.9% 10.0% 13.4% 18.1%

Marginal increase in food subsidy in FY21 as bulk of it is financed through National Small Savings Fund (NSSF)

Fertilizer subsidies budgeted at Rs 71,000 in FY21 down from Rs 80,000 cr in FY20 RE

ECONOMIC UPDATE


ECONOMIC UPDATE

Major schemes’ allocation continue to show focus on farm and

rural sector


Allocation to major Health and Education schemes roughly the same

Sr.

No.Scheme (In Rs. Cr.) Ministry FY17 FY18 FY19

FY20

(RE)

FY21

(BE)

1 PM-KISAN Agriculture 1,241 54,370 75000

2 MNREGARural

Development48,215 55,166 61,815 71,002 61,500

3National Education

MissionHRD 27,616 29,455 30,830 37,672 39,161

4 National Health MissionHealth and

Family Welfare22,870 32,000 31,502 34,290 34,115

5Pradhan Mantri Awas

Yojana

Rural and

Urban

Development

20,952 31,163 25,443 25,328 27,500

6Integrated Child

Development Services

Women and

Child

Development

15,893 19,234 21,642 24,955 28,557

7Pradhan Mantri Gram

Sadak Yojana

Rural

Development17,923 16,862 15,414 14,070 19,500

8 Swach Bharat Mission

Rural and

Urban

Development

12,619 19,427 15,374 9,638 12,294

9

Interest Rate Subsidy

for short term credit to

farmers

Agriculture 13,397 13,046 11,495 17,863 21,175

10 Green Revolution Agriculture 10,105 11,057 11,758 9,965 13,320

11Pradhan Mantri Fasal

Bima YojanaAgriculture 11,055 9,419 11,937 13,641 15,695

12

Urban rejuvenation

mission, AMRUT, Smart

cities mission

Urban

Development9,277 9,463 12,085 9,842 13,750

ECONOMIC UPDATE

Financing: Gross G-sec higher at Rs. 7.8 tn, but buffer available in

buyback and cash build-up budgeted

Numbers include switch of Rs. 2.7 tn as GOI extends maturities – leading to

higher duration supply to markets

Rs. Tn. FY19(A) FY20(BE) FY20(RE) FY21(BE)

Fiscal Deficit % GDP 3.42% 3.34% 3.75% 3.54%

Fiscal Deficit 6.49 7.04 7.67 7.96

Financing of Deficit

Net Borrowings (incl. Short Term) 4.30 4.48 4.99 5.40

Small Savings 1.25 1.30 2.40 2.40

State PF’s 0.16 0.18 0.18 0.18

Others 0.74 0.60 0.05 0.47

External Assistance 0.06 -0.03 0.05 0.05

Cash Surplus -0.01 0.51 0.00 -0.53

Gross G.Sec. Supply 5.71 7.10 7.10 7.80

Redemptions (-) 1.48 2.37 2.36 2.35

Net G.Sec. Supply 4.23 4.73 4.74 5.45

Buybacks (Net) (-) - 0.50 - 0.30

Switch (Net) 0.01

Net Market Borrowings 4.23 4.23 4.74 5.15

Short Term Borrowings (Net) 0.07 0.25 0.25 0.25

Net Borrowings (incl. Short Term) 4.30 4.48 4.99 5.40

Source: Budget Document, Axis Bank Economic Research, Axis Bank Investment Research

ECONOMIC UPDATE

Dependence on small savings, as a source of financing the deficit,

increasing over time

Higher small savings collections + repayment by states has led to significant

increase in the small savings funds which can either be used to finance the

deficit or push expenditure off-budget

-1,000

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

FY14 FY15 FY16 FY17 FY18 FY19 FY20RE FY21BE

Rs.

bn Sources of Financing the Deficit

Others Cash Surplus

External Assistance State PFs

Small Savings Short term borrowings

Net G.Sec. (incl. buyback & switch)


ECONOMIC UPDATE

Net supply continues to increase, but duration supply, helped by

switches is the real worry going ahead

(2,000)

-

2,000

4,000

6,000

8,000

10,000

12,000

FY15 FY16 FY17 FY18 FY19 FY20F FY21F

Rs

Bn

Net SLR Supply Demand Projections

Banks Insurance MFs FPIs PF/Pension RBI Others

Source: RBI, Axis Bank Economic Research, Axis Bank Investment Research

Source: Axis Capital

Key Budget MeasuresImpact and

Beneficiaries

• Customs duty on import of complete built units (CBU) electric

bus and trucks which is currently at 25%, is proposed to be

increased to 40%.

• Customs duty on semi-knocked down EVs which is currently

15%, is proposed to be increased to 25% for Bus, trucks and

2Ws and 30% for PVs and 3Ws

• Customs duty on completely knocked down EVs which is

currently 10%, is proposed to be increased to 15%

Neutral: Increase in

customs duty is

intended to spur local

manufacturing of EVs.

Sector is in a very

nascent stage in

India, the impact on

listed Auto companies

will be negligible

• Customs duty on parts used to manufacture catalytic

converters which is currently 5% is proposed to be increased

to 7.5%

Marginally

Negative add to the

BS-VI related cost

SECTOR UPDATES

Auto:


Beneficiaries

• New personal income tax proposes a lower tax rate across

brackets, however forgoes all deductions (life insurance,

ELSS, PPF, NSCs etc) this is optional as of now

• Deposit insurance coverage under Deposit Insurance and

Credit Guarantee Corporation (DICGC) Act increased to Rs.5

lakh from Rs.1 lakh

• Provide working capital facility to MSMEs in the form of

subordinate debt to be provided by banks

• Debt restructuring window of MSMEs extended till Mar’21

• Extended benefit to affordable housing on interest paid on

housing loan for loans sanctions upto Mar’21

• Eligibility limit for NBFCs for debt recovery under SARFAESI

Act

Negative for life

insurance companies,

HFCs

Negative for banks

as elevated insurance

costs

Positive for small

finance banks

Positive for HFCs,

but offset by change in

personal tax change

Positive for smaller

NBFCs

Banking and Financial Services:



Beneficiaries

• Increase in NCCD on cigarettes, weighted average tax hike of

~9%

• Rise in import tax on crude palm oil to 44%

• Hike in excise duty on footwear/footwear parts to 35%/20%

• Expenditure towards agri/rural has increased by ~13% to Rs

3.5 bn

Negative: For

cigarette

manufacturers/food

companies.

Positive: For

domestic footwear

manufacturers/FMCG

players with significant

presence in rural

markets.

SECTOR UPDATES

Consumer:

Item Current status Budget proposals

Cigarettes

NCCD on filter cigarettes is Rs 90/1,000 cigarettes for lengths below 70mm, Rs 145/1,000 for cigarettes above 70mm and below 75mm and Rs 235/1,000 for lengths above 75mm

Increase in NCCD on cigarettes to Rs 440/1,000 for lengths below 70mm and Rs 545/1,000 for cigarettes of lengths above 70 mm and below 75 mm and Rs 735/1,000 for lengths above 75 mm

FootwearCustoms duty on imports for footwear/footwear parts is currently 25%/15%

Hike in excise duty on footwear/footwear parts to 35%/20%

Crude palm OilImport tax on crude palm oil is currently at 37.5%

Rise in import tax on crude palm oil to 44%

Rural spending

Total expenditure allocated toward the agri sector, rural development and social welfare in FY20 was Rs 3.1 bn

Expenditure towards agri/rural has increased by ~13% to Rs3.5 bn

SECTOR UPDATES



Beneficiaries

• Budgetary allocation by the government to the infrastructure

sector increased ~8% at Rs 4.65 trn (vs. 10% growth in PY) –

equalling 2.1% of GDP as NIP targets. PSU capex is expected to

drop 6% YoY – thus, total Infra capex is expected to grow only

2% YoY (vs. 7% in FY20).

• Roads: 2,000 km highway, 9,000 km economic corridor, 2,000

km land and port roads, 2,000 km strategic highways – totalling

to 15,000 km have been proposed. NHAI has been allowed to

raise funds via 12 TOTs by 2024 for 6,000 km

• Railways: 27000 km of electrification. Large solar power

capacity along tracks to reduce energy cost, Bangalore Chennai

high speed train approved at Rs 186 bn.

• Construction: 27,000 km gas grid from present 16,200 km

• Capital Goods/ Manufacturing – positive tailwinds for Automation

business from electronics manufacturing/data centres

Infra – increase

in govt spending

offset by

weakness in PSU

capex

Positive Large conglomerate

companies

Positive for

Automation

companies

Item Current status Budget proposals

Road capex

(Urban + Rural + NHAI)

Rs 1.72 trn in FY20

(up 12% YoY)

Increased by 2% to Rs 1.76 trn

for FY21E – NHAI (-13%), urban

roads (+11%), rural roads (+39%)

Railway capexRs 1.56 trn in FY20

(up 17% YoY)

Increased by 3% to Rs 1.61 trn;

20% increase for Signaling (Rs

17 bn)

Metro capexRs 182 bn in FY20

(up 26% YoY)Increased by 8% to Rs 196 bn

Defense outlayRs 1.10 trn in FY20

(+16% YoY)

Increased by 3% to Rs 1,137 bn

(+33 bn) – of which Rs 52 bn

goes to aircraft procurement

Capex for urban

Infrastructure

Rs 183 bn in FY20,

down by 14% YoY

Increased by 35% to Rs 249 bn –

Namami Gange & Smart Cities

Engineering & Infrastructure:



Beneficiaries

• Outlay for quantum technologies and applications: It is

proposed to provide an outlay of Rs 80 bn over a period of five

years for the National Mission on Quantum Technologies and

Applications.

• Turnover aspiration for Government e-Marketplace (GeM):

Currently, ~Rs 3.24 lakh vendors are already on GeM

platform. As per media reports, total sales through GeM were

~Rs 22,00-23,0 bn in FY19. It’s proposed to take its turnover

to Rs 3,000 bn.

• Policy to build Data center parks

• Digital refund to exporters: It is proposed to digitally refund

duties and taxes to exporters which are levied at the Central,

State and local levels.

Mildly Positive:For Sector

SECTOR UPDATES

Information Technology:

Oil & Gas:


Beneficiaries

• LPG subsidy allocation has been increased to Rs 356 bn for

FY21 (up 20% from Rs 296 bn in FY20). Kerosene subsidy

allocation reduced to Rs 32 bn for FY21 (down 22% from Rs 41

bn in FY20), largely in line with 28% reduction in SKO demand

in 9MFY19

• Budget speech highlighted reforms like facilitation of

transparent price discovery for gas (possibly through trading

hub) to increase gas share of energy from current 6.5% to 15%

by 2030

Positive for oil

downstream

companies

Positive for PSU

upstream companies

but marginal negative

for City Gas Distributor



Beneficiaries

• Budget allocation on Healthcare expenditure: Raised by 4% to

Rs 650 bn towards health and family welfare and doubled to Rs

64 bn for PMJAY

• Imposed 5% health cess on imports of select medical

equipment

• R&D Deduction: 150% in FY20 and 100% in FY21, nothing

mentioned in the current budget

Positive for overall healthcare

industry

Marginally Negative

for hospitals as cost

increased

Infra push overall

positive for

healthcare industry

Marginally

Negative for Pharma

companies under MAT

SECTOR UPDATES

Pharmaceuticals / Healthcare:

Power:


Beneficiaries

• 15% corporate rate will be available for power generation too

like for new manufacturing units. Will benefit RE companies in

the medium to long term.

• Prepaid smart meters all over the country in 3 years. Will allow

consumers to choose supplier and rate

• Kusum scheme for solar pumps to extend to 2 mn farmers and

excess production can be sold to grid.

• PGCIL capex again proposed to fall ~30% to Rs 105 bn in

FY21E (down from Rs 258 bn; 2 years ago).

• Transparent price discovery for gas will be promoted – positive

for IEX; starting a gas exchange in FY21.

Positive For renewable

companies

NegativeFor T&D Companies

Positive For gas exchange



Beneficiaries

• Increase in interest deduction for Affordable Housing &

Deduction of Profits in Affordable Housing Projects extended

by a year to 31st March 21

• Capital gains/Income from other sources on Property, variance

between sales consideration and circle rate allowed up to 10%

• Deduction of interest and principal for home purchases (option

of lower tax rates without deductions/exemptions)

Marginally

Positive: Affordable

housing players

Marginally

Positive: Real estate

developers and

investors

Marginally

negative: Will dis-

incentivise first time

home buyers

SECTOR UPDATES

Real Estate:


Beneficiaries

• Government expects Rs 1,330 bn in receipts from

communication services (including telecom) in FY21 vs. Rs

590 bn expected in FY20. from AGR liability collection

(principal portion only). This could be a major relief for the

incumbents, as government has not included penalty, interest

and interest on penalty in its calculation.

• Bharatnet budgeted provision of Rs 60 bn (FY21) for providing

broadband connectivity to all the Gram Panchayats in the

country

• Optical fiber cable-based network for Defense Services,

budgeted provision of Rs 50 bn

Positive for Telecom

service providers as

well as telecom

infrastructure providers

Telecom:

• The Union budget has introduced some measured moves to bolster growth

and address areas that are crucial to India’s goal of achieving a USD 5 trillion

economy. The budget envisaged under three themes, viz., aspirational India,

economic development and caring society would drive the economy towards

holistic development and focus on welfare of citizens.

• The sixteen action points proposed in Agriculture, Irrigation, Rural

Development & Allied Sectors will provide impetus to further strengthen these

sectors making it more productive and sustainable.

• Additionally, focus on developing infrastructure and high emphasis on health,

education, skill development, innovations, tourism, MSMEs, agriculture and

allied areas will contribute to economic growth.

• Overall budget expenditure is pegged to grow at 12.7% YoY against nominal

GDP growth of 10% and hence offers modest support to growth. However,

total spending of budget & PSUs capex is projected to grow just 9% YoY, in

line with nominal growth. An additional growth impulse comes from lower

personal taxes which can spur consumption by boosting disposable income.

• We are constructive on Indian equity markets with a long term investment

horizon. In addition, given correction in mid and small cap stocks, the current

valuations appear attractive compared to its larger counterparts on a relative

basis.

• As growth has nearly bottomed, we should see gradual recovery ahead. In the

medium term, we are likely to be in low growth low inflation phase and

companies that demonstrate volume growth (given pricing power) would do

well.

• Volatility is expected to remain in the near term, as the economy is in a

transition phase. Any sharp correction caused by any extraneous events

should be treated as an opportunity to accumulate quality stocks and MFs.

• Overall the budget proposals are well balanced and targeted to kick-start the

long term growth for the economy while keeping in mind fiscal boundaries, and

a thrust to revive consumption spending.

• Investors can consider accumulating equities with a 3 to 5 years

investment horizon. They can also consider hybrid asset allocation

funds as such funds allow investors to free themselves from market

timing as well as asset allocation calls.

EQUITY MARKET OUTLOOK AND STRATEGY

• India’s economic growth momentum has slipped in the last 3-4 quarters. This

prompted regular policy interventions from both the RBI and the government

during the current fiscal to address slowdown & boost growth. There was an

expectation that the budget would further provide impetus to growth, but the

government was concerned about fiscal profligacy.

• The goal of fiscal consolidation, as prescribed by the new FRBM framework,

has not been abandoned. It now stands revised basis current macroeconomic

conditions. At the outset, the fiscal deficit for FY21 has been projected at

3.5% of GDP as per the medium term fiscal policy strategy. It is expected that

fiscal deficit would be lowered to 3.3% in FY22, and further towards 3.1% in

FY23.

• Gross and net market borrowings for FY2021BE have been increased to Rs.

7.8 tn and Rs.5.36 tn, respectively, against FY20RE of Rs.7.1 tn, however it is

in line with expectation of market participants.

• Reliance on financing through collections of the small savings fund sharply

higher at Rs. 2.4 tn in FY21BE and FY20RE – up from 1.25 tn in FY20BE and

1.03 tn in FY19

• High inflation and concerns about optimistic nature of revenue targets impart

an upward bias to interest rates. However, to a large extent, interest rate

trajectory depends on RBI action going forward. What could positively impact

interest rate outlook is the opening of certain categories of government

securities for foreign investors and raising FPI limit in corporate bonds to 15%

from 9%.

• Bond markets were closed on budget day; hence will react to the budget fine

print on Monday. 10 year benchmark paper on the eve of budget was at 6.6%.

• Given the current liquidity conditions and the market environment, we

remain constructive on the shorter end of the yield curve. Short Duration

funds, Corporate Bond funds, Banking & PSU Debt Funds, Low Duration

Funds and Ultra Short Duration Funds can be considered by investors

with an investment horizon commensurate with the maturity and

duration of the schemes, due to their steady accrual profile and possible

capital appreciation in case of a fall in yields. Having said this, one should

consider aspects such as exit load, capital gains tax and asset allocation

amongst others while evaluating their investment options.

DEBT MARKET OUTLOOK AND STRATEGY

DISCLAIMER

The report and information contained herein (hereinafter referred as “Report”)

is of confidential and meant only for the selected recipient. This Report should

not be altered, transmitted to, copied, reproduced or distributed, in any

manner and form, to any other person or media or reproduced in any form,

without prior consent of Axis Bank. The material in this report is based on

information obtained from publicly available recourses and/or sources

believed to be reliable, true and accurate by Axis Bank, as on dare of the

Report. Axis Bank does not guarantee that the information is true, reliable and

accurate, not misleading nor does it represent (expressly and impliedly) as to

its genuineness or suitability for intended the purpose of use. The opinion

expressed (including estimates and forecasts) in Report is subject to change,

alteration, updation at Axis Bank’s sole discretion but without any

communication and without prior notice of intimation.

This Report is not an offer or solicitation for dealing in any financial

instrument(s) or is an official confirmation of any transaction. This Report is

provided for assistance only and should not be construed as the sole

document to be relied upon for taking any kind of investment decision. Each

recipient of this Report should make his/her own research, analysis and

investigation as he/she deems fit and reliable to come at an independent

evaluation of an investment in the securities mentioned in this Report

(including the merits, demerits and risks involved), and should further take

opinion of own consultants, advisors to determine the advantages and risks of

such investment. The investment discussed or views expressed herein may

not suit the requirements for all investors.

Axis Bank and its group companies, affiliates, directors, and employees

may: (a) from time to time, have long or short positions in, and deal (buy

and/or sell the securities) thereof, of company (ies) mentioned herein or

(b) be engaged in any other transaction involving such securities and

earn commission/brokerage or other compensation or act as advisor or

lender/borrower to such company (ies) or have other potential conflict of

interest with respect to any recommendation and related information and

opinions.

DISCLAIMER

The applicable statutory laws, rules and regulations may not allow the

distribution of this Report in certain jurisdictions, and persons who are in

possession of this document, should inform themselves about and follow, any

such restrictions. This Report is not meant, directed or intended for distribution

to, or use by, any person or entity in any jurisdiction, where such distribution,

publication, availability or use would not be in confirmation to the applicable

law, regulation or which would require Axis Bank and

affiliates/associates/subsidiaries companies to obtain any registration or

license . Neither Axis Bank nor any of its affiliates, associates, subsidiaries

companies, its directors, employees, agents or representatives shall be held

responsible, liable for any kind of consequential damages whether direct,

indirect, special or consequential including but not limited to lost revenue, lost

profits, notional losses that may arise from or in connection with the use of the

information or for ant misstatement or error(s) in it.

Prospective investors and others are cautioned and should be alert that

any forward-looking statements are not predictions and may be subject

to change without providing any notice.

Past performance should not be considered as a reference to future

performance. The disclosures of interest statements if any included in this

Report are provided only to enhance the transparency and should not be

construed as confirmation of the views expressed in the report.

Disclaimer for DIFC Branch:

Axis Bank, DIFC branch is duly licensed and regulated in the Dubai

International Financial Centre by the Dubai Financial Services Authority

(“DFSA”). This Report is intended for use only by Professional Clients (as

defined by Rule 2.3.2 set out in the Conduct of Business Module of the DFSA

Rulebook) who satisfy the regulatory criteria set out in the DFSA’s rules, and

should not be relied upon, acted upon or distributed to any other person(s)

other than the intended recipient.